South Korea sees $US10.8bn revenue shortfall in 2013

South Korea's government projects a revenue shortfall of around 12 trillion won ($US10.79 billion) this year in part due to the weak economy and will need to issue more debt to fund spending, the finance ministry said on Friday.

The Ministry of Strategy and Finance said the 2013 budget approved by parliament did not account for reduced revenues from weaker-than-expected economic growth. Lawmakers' opposition also forced it to drop a plan to privatise state-controlled bank holding firm KDB Financial Group and reduced the amount of shares it would sell in Industrial Bank of Korea, leading to the shortfall.

"If the (shortfall) is left unaddressed, there are risks of a fiscal cliff-type of a situation materialising as the government will have relatively less money to spend in the second half due to the current plan to spend more in the first half," the finance ministry said in a statement.

The government on Thursday cut its 2013 gross domestic product growth forecast to 2.3 percent from 3.0 percent previously and said it planned to propose an extra budget in April to boost economic growth.

It remained unclear how much of this supplementary budget would lead to extra spending, which would likely exceed 12 trillion won given the shortfall.

Related Quotes

Company Profile

Vice Finance Minister Lee Suk-joon, speaking at a briefing with reporters, said the government would likely need to make up for the shortfalls by selling more debt but did not elaborate.

The ministry initially planned to raise 2.6 trillion won by selling some shares in KDB, which it can no longer count on. It also expects to get around 1.7 trillion won by selling down its shares in IBK, as opposed to the initial plan to raise 5.1 trillion won, because it now plans to simply reduce its holdings to around 50 percent as opposed to divesting the entire 65 percent stake in the firm.